Leisure industry, which took it easy in '80, sees upturn

ByRon Scherer, Business and financial correspondent of The Christian Science MonitorApril 20, 1981

New York
— Ah, spring! Wall Street's thoughts turn to baseball, sailing, bicycles, camping, and water skiing. In short, the leisure industry.

"This summer," says Steven Eisenberg, an analyst with Bear, Stearns &amp; Co., "the leisure picture is looking pretty optimistic to me." Mr. Eisenberg says the industry is beginning to see a cyclical upturn, which is producing better orders for the manufacturers of bicycles, swimming pools, water skis, and sailboats. He also expects the market for outboard motors to rev up again as the public becomes aware that gasoline is readily available.

This outlook is in contrast to last year's pessimism, when the whole leisure products industry took a tumble. As a whole, the Value Line Investment Survey estimates, 1980 earnings for the industry fell 12 percent. And the four largest manufacturers of recreational equipment saw their earnings drop 25 percent despite major cost-cutting programs. This year, Value Line is estimating that earnings will rise 20 percent for the industry as a whole.

The industry will bounce back primarily because many of the negative factors that influenced consumers last year are easing. Short-term interest rates are down from last spring's high, fuel costs have stopped rising, and personal incomes are up. (On Friday, the Commerce Department reported personal income rose at a 10 percent compounded annual rate in March.)

Equally important is the fact that dealer inventories for most recreational items are very low. Thus, any pickup in orders will have a quick effect. William G. Staton, senior vice-president and director of research at Interstate Securities Corporation, based in Charlotte, N.C., says the bicycle companies he follows "should be able to gear up and ship goods quickly once the orders start rolling in."

Bicycle orders are expected to be strong this summer, Mr. Staton says, noting that surveys have shown that consumers will be doing much more buying of durable goods this year. He notes that the bicylce market has been growing 6 percent a year, helped in large measure by an increasing number of adults who want to get the physical exercise provided by a bike. Some communities now provide bicycle trails, and some states are studying ways to help bike riders more.

In contrast to many other industries, US bicyclemakers have not been hurt by imports. Domestic production has risen from 72 percent of sales in 1972 to about 79 percent in 1980. Taiwanese bicycles represent about 50 percent of total imports.

The chief US manufacturers of bikes are the Huffy Corporation, with 35 percent of the market, and Murray Ohio Manufacturing (based in Tennessee), with 30 percent of the market.

Mr. Staton is estimating that Murray will earn $3.25 per share this year, compared with $2.73 in 1980, while Huffy will earn $1 to $1.10 per share for its fiscal year ending June 30, vs. $2.10 last year. Next year, he figures, Huffy could earn $2.10 to 2.15 a share and Murray Ohio, $4 a share. Moreover, he expects Murray Ohio to increase its pretax profit margins. Mr. Eisenberg is estimating that Huffy will earn $1.45 a share this year and Murray Ohio, $3.15 a share.

When consumers aren't riding their bikes, they might be turning to water skis. Mr. Staton says this bodes well for the Coleman Company, which owns O'Brien's water skis. Coleman also makes ice chests, camping-type stoves, BB guns, Hobie catamarans, and heating and cooling units for mobile homes. So, as consumers head for the great outdoors, Coleman is likely to profit.

Mr. Eisenberg, on the other hand, likes Coleco Industries, which makes aboveground swimming pools, hot tubs, and electronic games. This year the company should show a remarkable turnaround from a disappointing 1979.

Value Line, however, likes only AMF, the diversified sporting goods manufacturer and oil service business, rating it a "timely holding for the 12 months ahead."

The stock market staged a modest spring rally last week. The Dow Jones industrial average climbed back over the 1,000 level, closing at 1,005.58, up 12 .42 points, in the holiday-shortened week. Shearson Loeb Rhoades was active and higher after the brokerage house announced that it is planning a cash management marketing project with American Express Company. Some analysts also speculated that the two companies might merge. Short-term interest rates moved higher last week and most major banks moved their prime interest rate up to 17 1/2 percent, from 17 percent.